Interpreting Unemployment Data

By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)

The number of people filing for unemployment is compiled weekly and reported each Thursday in the weekly jobs claims report. When this number is rising/falling, it indicates the labor market is deteriorating/improving, and is an easy way to gauge the strength of the job market. Having more people working equals more spending, which greases the wheels that drive the economy forward.

Since the “Great Recession” of 2007-2008, economists have expressed concern that there have not been enough jobs, leaving too many capable workers on unemployment, and handcuffing the economic recovery. But what would it look like if there were too few workers? How would that affect the U.S. economy?

A significant drop in unemployment claims over time could be an indication that businesses are having a tough time finding workers. That businesses may have to pay overtime to existing employees, or entice employees away from other jobs by promising increased pay. Although this sounds like a wonderful scenario for employees, it brings with it wage inflation and it can also be a catalyst for real inflation (rising interest rates), which can be problematic for both the stock and bond market. For this reason, the Federal Reserve is ever-watchful for signs of inflationary pressures.

Although no such concerns exist today, on Thursday the U.S. Department of Labor released the weekly jobs claims for the week of Jan. 19. The report showed a dramatic decline in the number of people filing for unemployment last week, down 43,000 workers to 265,000, the lowest reading since April 2000. Although we must always consider that this week’s jobless claims were an outlier, it was a noteworthy report and one that will be interesting to follow more closely in the coming weeks.

Although higher-quality bonds dominated the top of the list this past week, the performance of emerging market bonds was the real eye-opener. Over the past five trading days, the J.P. Morgan Emerging Market Bond Global Core index rose 1.18 percent. Given the stock market’s recent volatility, this is the first time in a while that emerging market bonds have shown such resiliency in the face of uncertainty, and may be an indication of better things to come.

This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers. AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.